RESPONSE TO QUESTIONS RAISED IN THE MINUTES
OF EVIDENCE TAKEN BEFORE THE COMMITTEE OF PUBLIC ACCOUNTS, WEDNESDAY
22 NOVEMBER 2000

MANAGING COSTS IN ENGLISH FURTHER EDUCATION
COLLEGES (PAC 2000-01/02)

Memorandum of the Further Education Funding
Council

Ref.Q15

The Council is seeking the National Audit Office's
advice on the most appropriate way to respond to this request
and will also confer with the clerk to the committee, as suggested[12].

Ref. Q78 et seq and para 2 of a letter from Committee
Assistant to the Committee of Public Accounts to the Chief Executive
of 29 November 2000.

Concerning the questions asked by Mr Rendell
regarding the legal pursuit of the external auditors to the former
Bilston Community College, Deloitte and Touche, I am able to confirm
that:

(a) the Council is currently considering
action on the grounds of professional negligence on the part of
the external auditors, failure to exercise a proper duty of care
towards the former college's corporation and chief executive,
which gave rise to the substantial loss of public funds. The Council
is exercising the right to bring this action on behalf of the
former college under the terms of the Dissolution Order (1 October
1999). The Council is being assisted by leading counsel and solicitors
and anticipates lodging papers with the court by the end of March
2001 in order to prepare the claim fully and within the statute
of limitations.

The Council has analysed its own papers and those
of the former college, which have been secured, before reaching
the conclusion that action should be taken against Deloitte and
Touche, and, relatedly, against the internal auditors, Garratt
and Co. of Wolverhampton. This has been a lengthy process largely
because of the volume and chaotic nature of the former college's
own papers, and the complexity of its financial activities. It
should be noted that the Council has not had access to the working
papers of Deloitte and Touche which are held by them.

(b) Both internal and external auditors were
appointed and paid by the corporation of the former college

(c) out of public monies provided by the
Council for such purposes.

(d) In preparing a case against the internal
and external auditors of the former college, the Council has deliberately
exercised considerable care in examining the relevant documentation
and drafting appropriate reports for leading counsel and solicitors
to consider. The Council had kept both the NAO and the DfEE closely
informed throughout.

This has necessarily been a lengthy process
but one which, on legal advice, could not be avoided, particularly
considering the high cost of moving to the next stages of the
legal process. Leading counsel has stressed throughout the need
to weigh the strength of the case against the likelihood of recovering
public funds and the costs of the litigation. It is now his view
that it would be proper to proceed against both internal and external
auditors with a reasonable prospect of successfully recovering
substantial amounts of public funds.